Wednesday, December 07, 2005

21 or Nothing: Cheesecake Factory

If you're going to do casual dining, at least do it the right way.

Meet The Cheesecake Factory (CAKE), upscale purveyor of 50 varieties of cheesecake and other desserts, with an average check per guest of about $17.

Since the stock just came off a beautiful chart reversal pattern, we decided to take a closer look.

Therein we discovered quite the treat -- a niche chain that's gradually making the same regional to national shift that usually generates handsome returns.

For the Cheesecake Factory to be the next Starbucks (SBUX), however, it's going to have to grow the only way it can -- new restaurant openings.

The ubiquitous coffee chain continues to expand and is currently pursuing growth opportunities in Asia.

As a result, shares of Starbuck's are still hot.

CAKE's management expects to open 21 more US restaurants in 2006.

21 -- write it down -- that's the number we'll be watching closely next year.

Though shares are already up nicely in 2005, with strong management, brand visibility, and an enviable customer profile, the Cheesecake Factory's still atop our stock menu.

That's because 2005 will mark the first time that annual revenues at Cheesecake surpass the $1 billion dollar mark.

Let's hope the market wants another taste in 2006 -- at 35 X forward earnings, investors may soon be full.

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